Insurance Matters: What to Expect in 2023
The risk management challenges facing affluent families grow steadily more complex each year. Losses from extreme weather events and higher reinsurance costs continue to reduce the availability of coverage in higher-risk areas. Widespread natural catastrophes and economic turmoil will challenge affluent families in 2023. With rates rising in nearly all insurance lines and capacity reserved for only the best risks, affluent families need to get creative with their coverages, from seeking capacity in the excess markets to self-insuring their risk.
Over the past two years, natural catastrophes cost U.S. insurers a record $176 billion – a figure likely to increase significantly with projected losses up to $53 billion from Hurricane Ian. As record losses accumulated over the last several years, multiple carriers stopped writing new policies in fire and flood prone areas or pulled out of markets entirely. State Farm General Insurance Company announced on May 26 that it will stop accepting new homeowners insurance applications in California. The company cited “rapidly growing” catastrophe risks like wildfires, “historic increases” in construction costs, and a challenging reinsurance market.
Homeowners’ direct premiums written in California by excess and surplus (E&S markets) have almost tripled since 2018, rising in 2021 to $235 million. E&S markets or carriers are not bound by filed forms or rates and therefore have much greater flexibility to write and design policies to cover unique and specific risks, and to adjust premiums accordingly. These property policies will become the norm in high-catastrophe areas.
Homeowners at the top end of the market will need to assume more risk by implementing preventative measures to make their homes more insurable. In some cases, homeowners may need to self-insure a significant portion of their home’s value.
Many homeowners are now turning to the California Fair Plan, but these policies have a total limit of $3M. Fortunately, there are now E&S markets that are willing to write over the California Fair Plan giving homeowners access to higher limits.
Conducting insurance due diligence before purchasing a home will become paramount as more properties are deemed uninsurable. Here are some other considerations:
Check for overlooked coverage and credits: The devastation from wildfires will prompt carriers to add exclusions and conditions in property policies that could leave you underinsured. Have your broker review the sufficiency of policy limits and check for replacement costs, mold limitations, additional living expenses, flood and earthquake exclusions, and valuable articles deductibles.
Don’t forget about security: Investing in technology, services, and insurance together will enable you to develop a well-designed risk management plan, which can respond globally. Review security systems, add closed-circuit cameras, install back-up generators, and invest in site security. Don’t neglect to evaluate personal security, consider active cybersecurity management, travel evacuation plans, and even kidnap and ransom policies.
